Sunday, October 21, 2018

Estimate to Complete (ETC) – Forecasting Tool - Forecast remaining task

You will often want to know how much more money you need to complete a remaining task. In project management, one such technique is the Estimate to Complete (ETC), which is another forecasting technique used along with the estimate at completion.
This technique gives you an approximate idea of how much money will be required to complete the remaining balance of work.
Example I
You are constructing your home with a target budget of 100,000 USD. You are halfway to completion, and you feel that you may have to spend more than what you had planned. Therefore, you ask your contractor to give you a fresh estimate for the remaining work.
Your contractor calculates the cost of the remaining work and tells you that from now it will take 70,000 USD to finish building your home.
This 70,000 USD is the Estimate to Complete.
Example II
You are working on a project that is 30% completed, and 70% remains unfinished.
In this case, the Estimate to Complete is the expected amount of money to complete this 70% of remaining work.
Example III
There is another scenario in which you may want to calculate the Estimate to Complete.
Suppose that you’re building a five-story building and, due to a financial crisis, you cannot complete the project. Therefore, you decide to cut your building to three stories from five stories to save some money.
In this case, the Estimate to Complete will help you calculate your savings.
So, the Estimate to Complete (etc.) is a forecasting tool in project management that tells you the expected amount of money that will be spent to complete the remaining part of the project.
However, there is another forecasting tool that is often confused with the Estimate to Complete. This tool is the Estimate at Completion (EAC).
There is a difference between Estimate to Complete and Estimate at Completion.
Estimate at completion is the total cost of the project at the end. On the other hand, Estimate to Complete is the amount of money required to complete the remaining work from a given date.
Moreover, when the project starts, the EAC is equal to the ETC. As the project progresses, the ETC starts decreasing, and at the end of the project it becomes zero.

How to Calculate the Estimate to Complete

There are two methods to calculate the Estimate to Complete.
  1. Bottom up Cost Estimation
  2. ETC = Estimate at Completion – Actual Cost

Case I: Bottom up Cost Estimation 

In this case, you go to the activity level, find the cost of each activity for the remaining work, and add them to get the total cost of the remaining work.
There is no formula for the bottom up cost estimation technique.
Example of ETC (Case I)
You have a project to build a government department’s building for 500,000 USD. To date, you have spent 200,000 USD. However, during your project execution you noticed that your cost estimation was flawed and you need to re-calculate your budget for the remaining part of the project.
You sit down with your team members and re-estimate the cost of the remaining work. Your new estimate says that it will take 125,000 USD for construction, 75,000 USD for plumbing, 150,000 USD for painting, and 50,000 USD for other expenditures.
Calculate the Estimate to Complete (ETC).
Given in the question:
BAC = 500,000 USD
AC = 200,000 USD
Cost of construction = 125,000 USD
Cost of plumbing = 75,000 USD
Cost of painting = 150,000 USD
Other expenditures = 50,000 USD
Since you are using Bottom Up Cost Estimation, you will calculate the cost of each activity/work-package and then you will add them to get the final figure.
Hence, Estimate to Completion = Cost of construction + Cost of plumbing + Cost of painting + Other expenditures
= 125,000 + 75,000 + 150,000 + 50,000
= 400,000 USD
Hence, the Estimate to Complete is 400,000 USD.

Case II: ETC = EAC – AC 

In this case, calculating the Estimate to Complete is very straightforward. First, you will calculate the estimate at completion, and then you will subtract the actual cost spent from it.
Estimate to Complete = Estimate at Completion – Actual Cost
ETC = EAC – AC
Example of ETC (Case II)
You have a project to be completed in 12 months, and the budget at completion of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent, but on closer review you find that only 40% of the work has been completed so far. Your project is expected to perform with the same cost performance.
Find the Estimate to Complete (ETC) for this project.
Given in the question:
Budget at Completion (BAC) = 100,000 USD
Actual Cost (AC) = 60,000 USD
Planned Value (PV) = 50% of 100,000 USD
= 50,000 USD
Earned Value (EV) = 40% of 100,000 USD
= 40,000 USD
To determine ETC, first we have to find the EAC.
And, EAC = BAC / CPI
Hence, Cost Performance Index (CPI) = EV / AC
= 40,000 / 60,000
= 0.67
Therefore, Cost Performance Index (CPI) = 0.67
Now, Estimate at Completion (EAC) = BAC / CPI
= 100,000 / 0.67
= 149,253
Estimate at Completion (EAC) = 149,253 USD
Now, Estimate to Complete (ETC) = EAC – AC
= 149,253 – 60,000
= 89,253 USD
Hence the Estimate to Complete (ETC) for this project is 89,253 USD.

Summary

The Estimate to Complete is the anticipated cost that you will need to complete the remaining part of the project. This is a forecasting tool and you will use it when the previous estimate is no longer valid and you need a fresh estimate for the rest of the work. Tracking ETC gives you information on the projected cost of the remaining work. This tool is useful for whenever something goes wrong and the cost baseline deviates. You will use this tool as quickly as possible and communicate to stakeholders to get the new budget approved.

No comments:

Post a Comment